Debt management directors disqualified for taking client funds

Adrian and Christine Whitehurst, of Stockport, Cheshire, have been disqualified for a combined 24 years for their conduct in First Step Finance Limited, a personal client debt solutions and management company.

Adrian Whitehurst, a director from 2 October 2007 to 27 July 2009 and Christine Whitehurst, who succeeded him from 24 July 2009 to 18 October 2013, have provided disqualification undertakings to the Secretary of State of 10 and 14 years respectively.

The ban means neither Mr Whitehurst, nor Mrs Whitehurst is allowed to be a director of a limited company, whether directly or indirectly, for the duration of their bans.

The company traded from Stockport and operated under the regulation of a consumer credit licence preventing utilisation by the company or its directors and providing protection from any failure of the company. First Step represented to its clients that it was complying with these requirements when in fact it was not and the directors drew significant sums from the client accounts. At the date of Mrs Whitehurst’s resignation there was deficiency of client funds of £5,943,939.

The Whitehursts withdrew money from the company in breach of the regulations and treated it as directors’ drawings. They then set off their liability for the amounts they owed the company by selling their shares in both a speculative overseas property development and the company itself at prices that could not be explained and to their own advantage.

Furthermore funds taken from client accounts were loaned to companies owned and controlled by family members but which had limited trading histories and minimal assets and resulting in the sum of £678,816 outstanding and unrecoverable from these companies when First Step went into Administration.

Following the resignation of Christine Whitehurst the former Finance Manger Darren Newton acquired the company and became its sole director. He has given a disqualification undertaking for 3 years and 6 months in respect of his allowing First Step to utilise company funds, totalling £302,500, and enter into transactions to purchase First Step’s shares for the benefit of another company of which he was a director, at a time he was aware of the deficiency on the client account and was unable to pay these sums himself.

The disqualifications, effective from 7 July 2016, prevent Mr and Mrs Whitehurst from directly or indirectly becoming involved in the promotion, formation or management of a company for the duration of the term.

Commenting on the disqualification, Robert Clarke, Investigations Group Leader at The Insolvency Service said:

Customers who are forced to use debt management companies are particularly vulnerable individuals which is why the sector is subject to stringent regulation.

The actions of Mr and Mrs Whitehurst in deliberately misrepresenting the basis on which funds were held and then taking these monies to fund their lavish lifestyle are reprehensible and therefore disqualifications towards the top period allowed by law are entirely appropriate. The Insolvency Service will work with partner agencies to pursue such individuals to the full extent of the law.

Notes to editors

First Step Finance limited was incorporated on 28 September 2007 and went into administration on 28 May 2014. At Administration it had assets that realised £236,332 and liabilities of £7,354,030.

Both Mr and Mrs Whitehurst reside in Heaton Moor, Stockport. Their dates of birth are 7 April 1962 and 23 February 1963 respectively.

Mr Whitehurst is currently disqualified for five years in respect of his conduct in another company, Licit Legal Limited, from 12 January 2012 which will run until 11 January 2017. This disqualification will run concurrently with the disqualification in respect of First Step Finance Limited.

Darren Newton resides Manchester M40 and his date of birth is 23 October 1970.

Adrian Lee Whitehurst

On 16 June 2016, the Secretary of State accepted a Disqualification Undertaking from Adrian Lee Whitehurst effective 07 July 2016 for a period of 10 years. The matters of unfitness, which Mr Whitehurst did not dispute in the Disqualification Undertaking were that he caused First Step Finance Limited (First Step) to breach Debt Management Guidance issued by the Office of Fair Trading (OFT) in 2001 and 2008 in relation to client accounts (as required by the Consumer Credit Act 1974), from at least 13 February 2008 to 31 May 2009 in that no client account was operated, and from 1 June 2009 to the date of his resignation on 27 July 2009 in that the client account was not operated correctly and client funds were utilised for the benefit of the director and to the detriment of client creditors. In that:

First Step was incorporated on 28 September 2007 and commenced to trade carrying out debt management services

First Step held a Consumer Credit Licence obtained from the OFT on 26 November 2007. As such it was required in accordance with the Consumer Credit Act 1974 to adhere to the OFT’s Debt Management Guidance

the Debt Management guidance issued by the OFT in 2001 and 2008 to holders of consumer credit licences relating to fee charging debt management companies who provide debt management services states that client money must always be kept in a client account not usable by the debt management company for the purposes of its own business, and must always be available immediately for the benefit of the client

First Step had clients and handled client money from at least 13 February 2008 but did not operate a client account. Client money was paid into First Step’s current account from this date. First Step therefore did not keep client money ring-fenced, and utilised it for non-client matters making it unavailable for the benefit of the clients, causing a shortfall on the client ledger owing to First Step’s clients

a client bank account was opened with First Step’s bank on 01 June 2009. From 01 June 2009, after the opening of the client bank account, client money was not kept ring-fenced and the shortfall on the client ledger continued to be incurred

clients of First Step were told in documents provided to them by First Step that the funds paid by them to First Step, less agreed fees, would be placed in a ring-fenced account

As at 30 November 2008 there was a shortfall on the client ledger owing to First Step’s clients of £82,933, and as at 30 November 2009 there was a shortfall on the client account of £466,134. There was an outstanding Director’s Loan Account owing to First Step of £24,318 as at 30 November 2008 and £676,413 as at 30 November 2009.

Christine Whitehurst

On 16 June 2016, the Secretary of State accepted a Disqualification Undertaking from Christine Whitehurst effective 07 July 2016 for a period of 14 years. The matters of unfitness, which Mrs Whitehurst did not dispute in the Disqualification Undertaking were that she caused First Step to breach Debt Management Guidance issued by the OFT in 2001, 2008 and 2012 (as required by the Consumer Credit Act 1974), and Ministry of Justice Client Account Rules 2006 (pursuant to the Compensation Act 2006 and the Compensation (Claims Management Services) Regulations 2006), in relation to client accounts from the date of her appointment as a director of First Step on 24 July 2009 to the date of her resignation on 18 October 2013, in that the client account was not operated correctly and client funds were utilised for the benefit of the director and to the detriment of client creditors. In that:

First Step was incorporated on 28 September 2007 and commenced to trade carrying out debt management services

First Step held a Consumer Credit Licence obtained from the OFT on 26 November 2007. As such it was required in accordance with the Consumer Credit Act 1974 to adhere to the OFT’s Debt Management Guidance

the Debt Management guidance issued by the OFT in 2001, 2008 and 2012 to holders of consumer credit licences relating to fee charging debt management companies who provide debt management services states that client money must always be kept in a client account not usable by the debt management company for the purposes of its own business, and must always be available
immediately for the benefit of the client

First Step was authorised by the Claims Management Regulation Unit of the Ministry of Justice (“MOJ”) to carry out regulated claims management services from 21 October 2009

the MOJ Client Account Rules of 2006 state that every authorised business which holds client money must maintain one or more client account and must pay client money held or received into a client account. The authorised business must ensure that there is no debit balance on the client side of a client ledger account

First Step had clients and handled client money from at least 13 February 2008 but did not keep client money ring-fenced, and utilised it for non-client matters including to the benefit of directors and connected parties, making it unavailable for the benefit of the clients, causing a shortfall on the client account owing to First Step’s clients to be incurred from at least the date of my appointment as a director of First Step on 24 July 2009, until my resignation on 18 October 2013

clients of First Step were told in documents provided to them by First Step that funds paid by them to First Step, less agreed fees, would be placed in a ring-fenced account

as at 18 October 2013, the date of her resignation as a director of First Step, there was a shortfall on the client account owing to First Step’s clients of £5,943,939

She caused First Step to enter into transactions to the detriment of its creditors, in particular the clients, and to her own benefit or that of connected parties, and/or not for the benefit of First Step, the result of which was that clients were deprived of funds which should have been held on trust and should have been available to them for the payment of their creditors, in that:

during the period of her directorship of First Step, from at least 01 December 2009 to 18 October 2013, she drew funds from First Step and incurred personal expenses amounting to £2,613,743 as an overdrawn Director’s Loan Account. These amounts were offset by the following journal transactions, none of which were for the benefit of First Step

Purchase of Shares in an overseas development (Company A)

Mrs Whitehurst and her co-director purchased shares in Company A on 24 October 2011 using funds totalling £262,500 from First Step, and a personal limited recourse loan totalling £1,487,500. She and her co-director sold their shares in Company A to First Step during November 2011 for £1,686,746 and credited the overdrawn Director’s Loan Account in the amount of £1,578,165 on 30 November 2011 in relation to this sale, leaving a balance outstanding on the Director’s Loan Account of £4,303. First Step then owned the shares in Company A, which is an asset of questionable and not readily realisable value. At the time of this transaction there was a shortfall on the client account owing to First Step’s clients of £3,677,710. The Administrators have been unable to realise these shares.

Sale of Shares in First Step

Mrs Whitehurst sold her shares in First Step to Company B on 18 October 2013 and, as part of the sale and purchase agreement, was paid deferred consideration by First Step in relation to this transaction of £322,500 by bank transfers, between 26 November 2013 and 16 May 2014. First Step’s Consumer Credit Licence had been terminated on 29 July 2013, leaving First Step in an uncertain position. On 30 November 2013 the overdrawn Director’s Loan Account was credited in the amount of £1,216,743 and a new loan account in the name of Company B was debited in the amount of £1,294,500, in relation to this transaction, leaving a credit balance on the Director’s Loan Account of £12,174

at the time of the sale and purchase agreement on 18 October 2013 there was a shortfall on the client account owing to First Step’s clients of £5,943,939. At the time of the first payment on 26 November 2013 there was a shortfall on the client account owing to First Step’s clients of £5,833,439. As at 16 May 2014, the date of the last payment, there was a shortfall on the client account owing to First Step’s clients of £6,975,481

company B was a new company having been incorporated on 04 September 2013 with no independent assets or finance of its own

Loans to Connected Parties

Mrs Whitehurst caused or allowed First Step to make loans to Company C and Company D from 19 January 2011 onwards, which were not to the benefit of First Step or its clients. These companies were newly incorporated and had no assets.

Loans to Company C

company C incorporated on 13 January 2011 and a relative was a director from this date. The shareholders of Company C were all relatives

the first transaction on the Company C loan account was on 19 January 2011. Between this date and 18 October 2013 amounts totalling £1,246,075 were paid to Company C by way of bank payments and amounts totalling £965,001 were paid to First Step by Company C by way of bank receipts. First Step also paid Purchase Invoices totalling £18,284 relating to Company C between 19 January 2011 and 16 January 2013

as at 19 January 2011 there was a shortfall on the client account owing to First Step’s clients of £1,691,961

the balance on the Company C loan account outstanding to First Step as at 18 October 2013, the date of Mrs Whitehurst’s resignation as a director of First Step, was £225,739. On 30 November 2013 £225,739 was credited to the loan account in First Step’s Sage records for no known reason leaving a nil balance on the account

accounts relating to Company C for the period from incorporation on 13 January 2011 to 30 November 2011 show that it had net liabilities of £48,937. Accounts for the year ended 30 November 2012 show that Company C had net liabilities of £278,312. Company C was dissolved on 25 February 2014

Loans to Company D

company D was incorporated on 13 January 2011 and a relative was a director from this date. Mrs Whitehurst and her co-director were directors of Company D from incorporation until 14 April 2011. The shareholders of Company D were all relatives

the first transaction on the Company D loan account was on 19 January 2011. Between this date and 18 October 2013 amounts totalling £517,157 were paid to Company D by way of bank payments and amounts totalling £6,160 were paid to First Step by Company D by way of bank receipts. First Step also paid Purchase Invoices of £28,387 relating to Company D between 19 January 2011 and 12 August 2013

as at 19 January 2011 there was a shortfall on the client account owing to First Step’s clients of £1,691,961

the balance on the Company D loan account outstanding to First Step as at 18 October 2013 was £453,077

accounts relating to Company D for the period from incorporation on 13 January 2011 to 30 November 2011 show that it had net liabilities of £70,649. Accounts for the year ended 30 November 2012 show that Company had net liabilities of £445,766. Company D was dissolved on 17 March 2015

Summary

As at the date of her resignation as a director of First Step on 18 October 2013 the shortfall on the client account owing to First Step’s clients had risen to £5,943,939. The Statement of Affairs prepared in relation to First Step showed intercompany loans owing to First Step totalling £2,969,391 at the date of the Administration. No monies have been received from Company C or Company D since the date of the Administration and both companies are now dissolved.

Darren Lee Newton

On 06 June 2016, the Secretary of State accepted a Disqualification Undertaking from Darren Newton effective 23 June 2016 for a period of 3 years and 6 months. The matters of unfitness, which Mr Newton did not dispute in the Disqualification Undertaking were that he caused or allowed First Step to enter into transactions to the detriment of First Step and its creditors, and for the benefit of D Newton Limited, a company of which he was the sole director and shareholder in that, at a time following:

the existence of a shortfall on the client account owing to First Step’s clients, which stood at £6,201,942 on 18 October 2013

the availability of professionally prepared accounts, signed on 11 October 2013, for the year ending November 2012, showing net current liabilities of £3,652,835 and total net liabilities of £1,014,111

D Newton Limited having entered into a sale and purchase agreement w1th a former director of First Step, to purchase its shares for deferred consideration due in equal instalments over a 24 months period starting November 2013

He caused or allowed First Step to utilise company funds and enter into transactions to purchase First Step’s shares for the benefit of D Newton Limited and as a consequence a series of payments were
made to a former director totaling at least £302,500 between 26 November 2013 and 16 May 2014. These payments were described in First Step’s Sage account as “deferred consideration.”

The transactions were entered into with D Newton Limited although that company had been incorporated on 04 September 2013 had limited assets or finance of its own and he Mr Newton advised the Insolvency Service that D Newton Limited could not have paid the consideration for the shares as it did not have any funds. D Newton Limited was dissolved on 28 April 2015 and no monies have been received by the Administrators from D Newton Limited since the date of the Administration.

A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot:

act as a director of a company

take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership

be a receiver of a company’s property

In addition that person cannot act as an insolvency practitioner and there are many other restrictions are placed on disqualified directors by other regulations.

Disqualification undertakings are the administrative equivalent of a disqualification order but do not involve court proceedings. Further information on director disqualifications and restrictions can be found here.

The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.

Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available.

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